Most of us have had the conversation about utilizing Life Insurance as an Asset Class even though it is not technically one (yet).
There are those who are continually lobbying to have Life Insurance characterized officially as an Asset Class since Asset Classes are generally described as “a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.”
So, let’s break this down on a very basic level.
Life Insurance comes in many different forms and can be used for many different purposes. This is very similar to an Asset Class you may have heard of named Real Estate. In fact, I would bet that at one point or another you have told someone or been told by someone that Term Insurance is like a rental property – with no value – while Whole Life or Universal Life can act like owned property that builds equity.
Life Insurance products are anything but unpredictable. Even though there may be some “Non-Guaranteed” components, the most “aggressive” policies have clearly defined ranges that their performance will fall into. Again, you may have heard of an Asset Class called Fixed Income or Bonds. Many Life Insurance products’ investment components are based off this Asset Class and thereby will reflect similar behavior.
Life Insurance is regulated. There is no doubt of this in anyone’s mind who has completed New York’s Regulation 60 requirements, or any long for application anywhere. There is an argument to be made that Life Insurance is more heavily regulated than any of the four Asset Classes.
I hope that our efforts prove successful and that Life Insurance become the 5th Asset Class. We can discuss its standard deviation, its Alpha, and Beta. It is time that it is discussed properly.